The President’s Council on Integrity and Efficiency and the Executive Council on Integrity and Efficiency recently completed the National Single Audit Sample Project to determine the quality of the single audits being conducted. The sample consisted of 208 audits conducted between April 2003 and March 2004 and was subdivided into two groups: recipients expending more than $50 million (Large recipient) and those expending between $500,000 and $50 million (Small recipient) annually. The results were as follows:
|Sample||Total Sample||Large Recipients||Small Recipients|
Those audits viewed as unacceptable and could not be relied upon included audits which had material reporting errors or were substandard in how they were conducted.
The audit sampling found that the most prevalent deficiencies were in understanding the internal control over compliance requirements by recipients and the audit firms. In fact, 27.1% of large recipients and 57% of the small recipients (overall average 56.5%) had internal control issues which were not documented as compliance requirements
The second area of deficiency, once again related to internal controls and compliance requirements, was a failure to TEST the internal controls of at least some of the compliance requirements. (Large recipients 34.4%, small recipients 66.6%, overall 61%)
The third area was failure to document compliance testing of at least some compliance requirements. (Large recipients 47.9%, small recipients 59.8%, and overall 59.6%)
The fourth area of concern and major consequence was misreporting of coverage of major programs. The study concluded that almost 10% of large recipient audits and just over 6% of small recipient audits identified one or major programs as having been audited as a major program when in fact they had not.
What Does A “Unreliable Audit” Mean?
When an audit is deemed unacceptable or of limited reliability, the costs associated with the audit become unallowable by definition. Because the organization depended upon the audit firm to execute an audit which could be relied upon and this did not occur, the audit firm needs to make things right. The auditee needs ensure upfront that the audit contract includes terms for what happens if the audit is subsequently viewed as substandard by the government. Will the audit firm fix the audit at no additional cost to the auditee? What will happen if the federal agency disallows the cost of the audit because the audit process was inadequate? The cost of these inadequate audits will fall on the audit recipient and it will be up to the audit recipient to go back on the audit firms to recover the cost of the audit and/or get an audit that meets the standards set by the government.
Copyright ©2007 Lea A.Strickland, F.O.C.U.S. Resource, Inc.
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